Industrial Marketing - 20307

B2B DECISION MAKING

PROCESS

Aman Dalmia - 3097645

SDA Bocconi

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Index
1. Introduction to the B2B world
2. What is a decision making process?
3. Members involved in a decision making process. What influences their
decision?
4. How is the decision making process different for different types of products?
5. Evolution of Decision Making
6. Conclusion

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Introduction to the B2B world.

What would be the difference between a candy store selling a chocolate bar to an individual
and a chocolate manufacturer selling huge amounts of chocolate bars to a single candy store?
While selling candy to an individual customer might rely on salesmanship and knowledge
about individual taste and cravings, selling them to a store takes more than just an attractive
packaging.
Rather, the manufacturer must ensure a safe, profitable agreement between the two
organisations. The manufacturer will market the quality, cost and customer appeal of its
chocolate bars to convince the candy store it will have an easy time selling them.

Figure 1: Key differences between B2B & B2C Marketing

Figure 1 talks about the key differences between B2B & B2C Marketing in brief. These
differences are as follows:
a. Relationship Development
B2B: Businesses focus on building long term personal relationships
B2C: Businesses focus on driving short-term value at an efficient rate

b. Branding
B2B: Businesses focus on lead generation rather than on building a solid brand
B2C: Businesses focus on increasing brand recognition in order to sell products

c. Decision Making Process

B2B: Buyers are logical and make decisions through committees
B2C: Buyers are emotional and make purchase decisions based on desires

d. Audience Targeting
B2B: Businesses market to a group that consist of multiple decision makers
B2C: Businesses market directly to the end user

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 e. Terminology
B2B: Businesses utilise industry terminology to connect with potential businesses
B2C: Businesses use simpler language that easily connects with the end users

Industrial Marketing (B2B Marketing) often involves large orders and long term relationships
between the manufacturer and the client. The process to reach the close of sale from the first
pitch is very complex and time consuming as compared to a process between a business and
private consumer.
The sales in B2C majorly involve one-on-one interactions between two parties, the sales in
the B2B area are usually made up of a number of individuals. Before the product appears on
the other store’s shelves, the two businesses must reach a deal that will involve the
manufacture, purchase, and shipping of products.

B2B marketers generally focus on four large categories:

- Companies that use their products. Eg: construction firms who purchase sheets of
steel to use while constructing buildings.
- Government Agencies – the single largest target and consumer of B2B marketing.
- Institutions like schools and hospitals.
- Intermediaries that resell goods to end consumers. Eg: Brokers, Wholesalers and
Retailers.

A B2B marketer should be able to effectively put their product or service into the right hands
by positioning their offering in an exciting manner, understanding the customer’s needs and
proposing the right solutions to combine the two.
Just like to the B2C area, it is very important for B2B marketers to understand their clients’
needs before implementing any marketing or advertising tactics. However, sometimes, in the
consumer marketing world, an effective advertisement can be released over various channels
which might prompt a percentage of consumers to buy the product. However, since B2B
marketing is so specialised, marketers run the risk of alienating their specific prospective
candidates if they do not pay close attention to their needs before tailoring their services.

What is a decision making process?

B2B marketers must understand the dynamics of organisational buying behaviour. It helps
them identify profitable market segments, locate and identify the buying influencing criteria
within these segments and reaching the buyers efficiently and effectively with an offering
that satisfies their needs.

Organisational buying is a process and not an isolated act or event. It involves several stages
and each of these stage requires a decision.
It starts with need recognition when someone in the company finds a problem that can be
solved or an opportunity that can be tapped. It can be triggered by internal as well as external
forces.

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Below are the stages of organisational buying process:

a. Problem Recognition
b. General Description of Need
c. Product Specifications
d. Supplier Search
e. Acquisition and Analysis of Proposals
f. Supplier Selection
g. Selection of Order Routine
h. Performance Review

Usually, there is a lot at stake, hence, purchasing decisions take a lot of time to unfold, usually
weeks or months and sometimes even more than a year. Customers conduct enormous
amount of research about potential vendors and deep dive into the product characteristics.
They hold several sales meetings before coming to the final decision.

Below is a short description of the difference between the decision making process of B2B &
B2C markets:

a. B2B:
- The decision to purchase a product or service has commercial purposes
- The decision needs to be made only after a rational analysis
- Consideration time is long
- Ongoing assistance by the seller is present

b. B2C:
- The decision to buy is based on impulse sometimes
- The decision made may or may not be after a rational analysis
- The process does not take a very long time

During the decision making process, B2B customers must evaluate the company or their
individual worker’s needs. These needs can be classified into rational and emotional
motivations.

a. Rational Motivations:
- Those motivations that drive their financial mind.
- The evaluators think “Is this a good investment for us?”

b. Emotional Motivations:
- Those motivations that drive their emotional connection to the company or
individual workers.
- The evaluators think “Will I have to fire someone or a group of people? Will we
lose money and have to cut benefits for our workers”

Both these decisions are important enough to sway their final decision.

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Members involved in a decision making process. What influences their
decision?

The people involved in the decision making process in a B2B context are collectively called as
the ‘Buying Centre’ or the ‘DMU – Decision Making Unit’. All the members have
interdependent objectives and share common risks. For a B2B marketer, it is also important
to understand the roles of the members of the buying centre. This helps them to develop
effective communication and promotion strategies.

Buying Centre Roles

There are six roles played by the members of the Buying Centre. They are as follows:

a. Initiators
This includes individuals who first recognize a problem or a need which can be
resolved by purchase of a product or a service. Often, the users of a product/service
play the role of initiators.

b. Buyers
Usually, they are the purchase officers and executives of the organization. The major
roles or responsibilities of a buyer are:

i. Obtaining quotes and offers from suppliers

ii. Supplier evaluation and selection
iii. Negotiation
iv. Processing purchase orders
v. Expediting deliveries
vi. Implementing purchasing policies of the organization

c. Users
Individuals who use the product or service that is to be purchased. Often, they are the
initiators as well. They might or might not have a major influence in the purchase
decision. They usually define the specifications of the needed product.

d. Influencers
They have the ability and power to influence the buying decision. Generally, technical
people (such as design engineers, quality control engineers) have a substantial
influence on the decision. Sometimes, individuals outside the organization (experts or
consultants) play the role of influencers by drawing specifications of products or
services.

e. Deciders
These are the ones who make the actual buying decision. It may be a single individual
or a group of executives. Although difficult, but it is very crucial to identify the deciders
of a Decision-Making Unit. For routine purchases, the buyer may be the decider.
Senior executives hold the final decision usually while purchasing high-value and
complex products.

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 f. Gatekeepers
They are individuals who can control the flow of information regarding the products
and services that need to be purchased. They are often the assistants or junior persons
attached to the purchase manager.

Marketers, after understanding the roles of the buying center members, must identify the
individuals and groups who are the members of the buying center.

Figure 2: Example of relation between designation,

interest & role during decision-making process

What influences their decision?

The target audiences for B2B communications are amorphous, made up of groups of
constantly changing individuals with different interests and motivations. For example:
- Buyers seek a good financial deal.
- Production managers want high throughput
- Health and safety executives want low risk
These are just simple and functional needs. Each person who is a part of the DMU will also
bring their psychological and cultural baggage to the decision and this can create interesting
variations to the selection of products and services.

How is the decision making process different for different types of products?

To explain this, there are 2 matrices

a. Spend – Strategic Importance Matrix

b. Risk – Value Purchase Decision Matrix

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Spend – Strategic Importance Matrix

Your product offering is important to the consumer in two ways: the percentage of budget
spent on the product, and the strategic importance level placed upon it.
Spend: If less than 5% of the annual budget is spent on the offer, the classification is ‘low’. If
the spend is more than 5%, the classification is ‘high’.
Strategic importance: If the product is important to the consumer’s operations and not
immediately replaceable by another, classify the offering as ‘high strategic importance’. If the
product does not meet the above conditions, the classification is ‘low strategic importance’.
• Low-spend, low strategic importance – for example: stationery:
The product is of low strategic importance and the purchase decision is made by a
single person. The consumer may not pay attention to the product’s price, which can
give you a high margin.
• Low-spend, high strategic importance – for example: safety certification:
Your offering is not that expensive, but is important for the customer’s business
operations. This makes them extremely loyal and ultra-cautious. The customer’s
decision making team will include several employees including one or more technical
specialists.
• Low strategic importance, high-spend – for example: utilities in a service firm:
Your offering is not critical to the client’s operations, but they are concerned with its
price. The decision-making team will include a top management executive and
someone from the purchase department
• High strategic importance, high spend – for example: plant equipment:
Your product is both high value as well as important to the client’s operations. The
decision-making team consists of many people since it’s a purchase of high strategic
importance and someone definitely from the top management.

Risk – Value Purchase Decision Matrix

Figure 3: The Risk-Value Purchase Decision Matrix in B2B Marketing

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This model divides the B2B purchases into four categories according to their financial value
and the level of business risk associated with that purchase. Each of these categories gives
rise to different purchasing behaviour and entails different complexities.

• Low Risk, Low Value:

These purchases are very less different from consumer purchases. They often involve
a single person with a junior designation. There is low financial or business risk
involved in this purchase. Hence, relatively little thought goes into the decision.
• Low Risk, High Value:
These include items such as raw materials and involve a mix of technical and
purchasing personnel. They might also include senior officials like the members of the
board. The process is complex in order to ensure that the purchasing price is minimum
without impacting the quality. Purchasing personnel would be the key decision maker
on a transaction-by-transaction basis. Although, these guys may be guided by the
technical people after reviewing the incoming products, services & suppliers
periodically.
• High Risk, Low Value:
These include items such as office insurance and might include people from the
purchase departments and the legal team. The guys from the legal team would tend
to be the key decision maker usually.
• High Risk, High Value:
These are the most distinct from consumer purchases. Here, a large number of senior
decision makers evaluate the options thoroughly. In the case of purchasing a plant
equipment, there might be the CFO, R&D Director, Production Director, Purchasing
Director, Head of Legal Department, CEO and a number of upper-management
department heads involved.

Evolution of Decision Making

Technology and Customer Expectations have caused a shift in the B2B buying process.
Improvements in technology allows companies to meet the needs of their customers
efficiently. However, this also leads to evolving customers’ expectations. This forces the
supplying companies to continue innovating in order to keep up with the fast moving market.

Below is how the B2B buying process has been impacted by the above-mentioned two factors:

a. Buyers have access to a lot of information

- B2B customers do a lot of research prior to coming to their final purchase decision.
- 50% to 70% of the B2B buying process is over before the customers reach out to
the providers.

b. Buyers depend on referrals

- Referrals are important to a B2B customer.
- It is reported that 84% of B2B decision makers start the buying process based on
a referral.

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 c. Buyers want a more personalized and individualized service.
- The relationship between the B2B buyer and seller has always been more than just
a transactional one.
- Today, B2B companies need to ensure that they are engaging effectively with their
audience on a personal level throughout their buyer’s journey

d. Buyers want authenticity

- Today, B2B customers want to know that the companies they do business with
actually care about providing top quality services to help them achieve their goals.
- B2B customers also want to truly know the people behind the companies they do
business with.
- Often, the purchase decision depends on how aligned each organisation is on a
very deep level.

Conclusion

It would be incorrect to say that all B2B buying decisions require a lot of thinking, planning
and analysis before coming to the final decision. It actually depends on the type of product or
service that needs to be purchased. The number of members in the ‘Buying Centre’ also
depends on the nature of the product. While purchasing office stationery, only the admin
staff and probably a junior in the purchase department will be involved and not much analysis
will go behind in making the purchase decision. Whereas, while purchasing plant equipment,
a thorough detailed analysis of the need, alternatives, suppliers and budgets is required. Also,
the people involved in the ‘Buying Centre’ will be many and would include people from the
purchasing department, head of production, CFO, CEO, Head of R&D, Plant Head, etc. These
people would be playing different roles and will have different interests and would be
influenced by different characteristics of the product or its supplier.